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Summary

The taxpayer sought a review of the land tax assessments issued by the Chief Commissioner of State Revenue (the Chief Commissioner) for the 2006 – 2010 tax years pursuant to the Land Tax Management Act 1956 ("the LTMA") in respect of the applicant's property at Calga ("the subject property"). The issue was whether the primary production exemption under Section 10AA LTMA (for 2007 - 2010 tax years) should have applied in respect of the subject property.

The Tribunal affirmed the decision of the Chief Commissioner that the land was not entitled to a primary production exemption. The Tribunal determined that the use of the land to agist horses did not satisfy the test of land used for primary production. The Tribunal also decided that the dominant use of the land was for recreational uses including horse riding, quad biking, kayaking and abseiling.

Background

The subject property consists of 37 allotments totalling 2,847 acres and during the relevant tax years was zoned non-urban. The property is situated on a valley consisting of pastured river flats surrounded by steep valley walls, rocky escarpments and the surrounding ridges. The valley slopes and escarpments are vegetated and steep, which are not suitable for agricultural production and are not used for any activity at all, apart from a 50m by 20m area on which abseiling sometimes takes place.

In order to satisfy the requirements for the primary production exemption, the taxpayer had to prove that the land satisfied the meaning of “land used for primary production” in section 10AA(3) of the LTMA.

Judicial Member Block identified the three key issues in this case as:

whether the agistment of horses pursuant to contracts of agistment falls within s. 10AA(3)(a) of the LTMA as land the dominant use of which is cultivation for the purpose of selling the produce of the cultivation;

whether the dominant use of the property was either:

the growing of pasture and agistment of horses (which the applicant submitted constituted uses of the land that fell within s. 10AA(3)(a) of the LTMA as "primary production uses"); or

the large variety of recreational activities conducted on the subject property (such as horse riding, quad biking, kayaking and abseiling); and

whether the subject property had any dominant use, having regard to the fact that, during the relevant years, 79% of the area of the subject property could not be used for any purpose (due to the valley slopes being steep and rocky).

Decision

The agistment issue

The taxpayer submitted that the agistment of horses on the subject property fell within s.10AA(3)(a) of the LTMA and title to the produce of the cultivation (ie the pasture) passed to the owners of the agisted horses when those horses consumed the pasture on the subject property, meaning that the produce of the cultivation was sold to the owners of the horses within s.10AA(3)(a) of the LTMA.

The Tribunal found that the agistment contracts did not constitute a sale of the cultivated pasture, as the agistment contracts in this case involved more than the mere feeding of the horse. The Tribunal found that the agistment contracts involved other considerations, such as a fee for allowing the horse to be on the land and monitoring its health and well-being. The Tribunal determined that there was no sale of pasture to the owners of the agisted horses as the agistment fees payable by the owners were in no way related to the quantity of pasture consumed by each agisted horse.

The Tribunal considered the decisions in Jones v Commissioner of Land Tax 80 ATC 4539 and Shanahan v Commissioner of Land Tax 80 ATC 4320 and found that the agistment of horses does not fall within s. 10AA(3)(a) of the LTMA.

The Tribunal concluded that the applicant could not succeed in this case because the actual use of the land for the agistment of horses did not satisfy the test of being the use of land for primary production.

The dominant use issue

Based largely on the content on the taxpayer's website, the Tribunal formed the view that an independent observer would conclude that the subject property is used as a holiday resort with numerous recreational facilities, including horse riding tours, camping, kayaking and abseiling.

In relation to the horse riding activities, Judicial Member Block found that it was irrelevant that part of the horse riding activities took place on other land, as horses were made available at the subject property and the horse rides used the services of employees based at the subject property. Therefore, there was no basis for excluding part of the revenue generated from the horse riding activities in determining the dominant use of the subject property.

In relation to the dominant use issue, the Tribunal ultimately found the recreational use was the dominant use of the subject property, and in the alternative, that the taxpayer had failed to discharge the onus of proof.

The unusability issue

In relation to the significance of 79% of the land not being unusable for any purpose, Judicial Member Block noted that the decision of Rath J in Brown v Commissioner of Land Tax (1977) 7 ATR 642 provided "some measure of support" for the taxpayer's contention that the subject property will have a dominant use of primary production if primary production occurs on a significant, albeit not a major, area of the subject property. However, Judicial Member Block did not consider it necessary to make a finding on the unusability issue.